{"id":6918,"date":"2020-03-09T06:00:00","date_gmt":"2020-03-09T06:00:00","guid":{"rendered":"https:\/\/www.foxymonkey.com\/?p=6918"},"modified":"2020-03-08T21:50:06","modified_gmt":"2020-03-08T21:50:06","slug":"ir35-cost-outside-inside-perm","status":"publish","type":"post","link":"https:\/\/www.foxymonkey.com\/ir35-cost-outside-inside-perm\/","title":{"rendered":"How much will IR35 cost you? Outside – Inside – Perm"},"content":{"rendered":"\n

This guide talks about the impact IR35 will have on your take-home pay. How much will IR35 cost you? Should you go Inside IR35\/Umbrella or Perm?<\/p>\n\n\n\n

In Part I<\/a> of the IR35 mini-series<\/a> we talked about the current state of contracting and the IR35 mess. We covered some pros and cons of being a contractor and how it compares with being a permie.<\/em><\/p>\n\n\n\n

It\u2019s now time to talk numbers. The math will hopefully help you decide whether IR35 has made contracting worth continuing. The answer, as usual, is: it depends! Before we dive in, first some definitions. What do we mean by Outside IR35, Inside and Perm:<\/p>\n\n\n\n

Outside IR35:<\/strong> The pre-2020 contracting landscape. You operate as a limited company that pays corporation tax and personal income tax. You have the freedom to choose your taxes based on how much you want to withdraw as salary\/dividends from your company. Also, business expenses can be claimed.<\/p>\n\n\n\n

Inside IR35 \/ Umbrella<\/strong>: You still operate as a contractor through your limited company<\/strong> or through an umbrella<\/strong>. The take-home pay amounts between inside IR35 and umbrella are very similar. You are taxed more than a permanent employee. That\u2019s because you have to pay both yours and the Employer\u2019s National insurance.  <\/p>\n\n\n\n

You\u2019re not paid while drinking Pina Coladas on the beach or when sick (except a small amount of Statutory pay).<\/p>\n\n\n\n

Your gross pay is usually higher than a perm to compensate for these plus all other minuses that come with contracting, like void periods, short notice period, accounting, DIY pension etc. You don\u2019t get to choose when to withdraw your profits, as everything is taxed at source and you must take all income home now.<\/p>\n\n\n\n

Permanent employee (perm)<\/strong>: The majority of the workforce belongs here. The usual employee of a company, who belongs to the company payroll, has a salary that lands in your bank account each month no matter what. Entitled to holidays, sickness pay, and potentially other benefits such as pension, training and mandatory performance reviews.<\/p>\n\n\n\n

How much will IR35 cost me Inside IR35 or Umbrella?<\/h2>\n\n\n\n

This is the most common question. People switching from Outside IR35 to Inside or Umbrella want to know how much income they will lose.<\/p>\n\n\n\n

For starters, we assume that the Outside IR35 contractor takes all income home and leaves nothing in the company.<\/strong><\/p>\n\n\n\n

Taking all income out is not the most tax-efficient way to deal with your company money. But it\u2019s a good baseline<\/strong> so let\u2019s start with that. The following graph shows the take-home pay<\/strong> Outside IR35 compared to Inside IR35\/Umbrella at the same rate.<\/p>\n\n\n\n

\"Cost